The Politics of Infrastructure
About the only issue on which Donald Trump and Hillary Clinton agreed during the 2016 presidential race was the need to rebuild America’s infrastructure—roads, bridges, mass-transit systems, and the like. In fact, Trump proposed spending twice as much on infrastructure as Clinton did. That endeared him to his base voters, who saw it as a concrete (literally) manifestation of his promise to “make America great again.”
The country’s infrastructure is certainly in sorry shape. The American Society of Civil Engineers rates the overall condition of our bridges as C+ and our roads and mass transit systems as D. Many of these structures, built decades ago, are reaching the end of their useful lives.
Under pressure from traditional conservatives in Congress, who are no fans of big domestic spending projects, Trump agreed to defer infrastructure until after his first 100 days in office. But a big push on the issue by the administration clearly is coming.
Indeed, Trump has profound political and personal reasons to fulfill the promise he made during the campaign. His whole professional identity, after all, revolves around the creation of steel and concrete structures (usually built by others) with his name on them. And an infrastructure build-out of the size he has talked about— upwards of $1 trillion—would surely juice an already growing economy and provide well-paying jobs for many of the non-college-educated white male voters who supported him.
Moreover, some close Trump advisers see infrastructure as a way to pull Democratic voters, including some minorities, into a new political coalition that will remake the Republican Party and keep it in power for decades. “With negative interest rates throughout the world, it’s the greatest opportunity to rebuild everything,” Trump campaign CEO and now chief White House strategist Steve Bannon told the Hollywood Reporter soon after the elections. “Shipyards, ironworks, get them all jacked up. We’re just going to throw it up against the wall and see if it sticks. It will be as exciting as the 1930s, greater than the Reagan revolution—conservatives, plus populists, in an economic nationalist movement.”
Such grandiose political hopes aside, many Democratic lawmakers are clearly open to working with Trump. In fact, Senate Democrats have proposed spending the same amount on infrastructure as Trump has: $1 trillion. That is far more than most GOP lawmakers are comfortable spending. But precisely because of that Republican resistance, Trump will almost certainly need large numbers of Democratic votes to pass any substantive infrastructure bill. That means Democrats likely will have significant leverage in determining the shape of such legislation.
What should Democrats demand in return for their support? For one thing, that Trump drop the idea his advisers floated in November for $85 billion in new tax credits for infrastructure investors. The private sector must be involved in America’s infrastructure build-out, but tax credits are a very expensive way of making that happen. Tax credits attract private investors and corporations needing high rates of return to offset their tax liabilities, returns in the range of 18 to 35 percent annually. But infrastructure investments don’t typically produce those kinds of high returns unless the risks are somehow shifted onto others, typically taxpayers. With interest rates at 3 percent, it’s much cheaper and less risky to the public for the federal government to simply borrow the money and have it paid back by local sources, both public and private.
Even more importantly, liberals should recognize that it is no longer 2009. Back then, to stabilize an economy in free-fall, Democrats passed a massive stimulus bill with tens of billions of dollars devoted to whatever “shovel ready” projects state transportation departments happened to have on the shelf—widening interstates, paving rural roads, etc.
Today, with unemployment low and economic growth steady (though hardly robust), there’s no need for an immediate Keynesian stimulus. Nor is it in Democrats’ political interests to embrace the Trump-Bannon vision for gargantuan and possibly indiscriminate building projects. In this, they have, unexpectedly, reason to make common cause with their fiscally conservative GOP colleagues.
Instead of agreeing to open the federal funding spigot and spraying infrastructure dollars haphazardly, Democrats and their conservative Republican allies should insist that any federal infrastructure legislation be focused on a long-term strategy based on two simple questions: What do Americans want their communities to look like 25 years from now? And what unique set of infrastructure investments will get them there?
Answers to these questions are already out there, as revealed by Americans’ choices in the marketplace. Almost every market metric we have—particularly in shifts in for-sale housing and rental prices—indicates a vast unmet demand for homes and commercial spaces in or near what real estate professionals call “walkable urban” communities. These are relatively densely built places where people can get to stores, parks, restaurants, bars, and movie theaters, as well as to their jobs, without having to use their cars. “Walkable urban” doesn’t necessarily mean city living, though the revitalization of American cities is strong evidence of the trend. Suburbanites, too, want walkable urban places in their communities, as shown by the popularity of new suburban “town centers” in places like downtown Bellevue, Wash.; Plano, Texas; and Reston, Va. Small-town Americans, too, are seeing their traditional, often neglected town squares and main streets come back to life, in places such as Albert Lea, Minn., and Batesville, Ark.
The problem is that demand for walkable places far outstrips supply, artificially jacking up real estate prices in these communities—consider the insane rents and sales prices today in Brooklyn’s Park Slope, Chicago’s Lincoln Park, or the Virginia Highland neighborhood in Atlanta, compared to other parts of their metropolitan areas. This phenomenon, otherwise known as gentrification, makes it seem as if only the affluent desire walkable neighborhoods when in fact their appeal transcends class, race, geography, and political inclination. These price premiums suggest the market is saying: build more of this stuff.
This is not to say that many American communities, households, and businesses are rejecting drivable sub-divisions, strip malls, and business parks. These are the exact types of communities many Americans, probably a slight majority, want. But we have vastly overbuilt this type of development; the market has been more than satisfied.
A major reason for this mismatch between market demand and supply is federal infrastructure policy that favors drivable development at the expense of walkable urban development. For instance, the feds have long been far more generous in subsidizing the building and widening of interstate highways that funnel traffic out to the distant suburbs than in funding rail, bike lanes, and pedestrian improvements that make walkable neighborhoods practical. That policy bias resulted in this vast overbuilding of low-density suburbs on the metropolitan fringe—development that sparked the Great Recession and made it much deeper and longer that it otherwise would have been. It was the plummeting prices of homes in exurban communities such as Riverside County outside Los Angeles and Prince William County outside Washington, DC, which have still not returned to their pre-recession prices and have left many homeowners with mortgages that are still underwater.
Any new infrastructure bill should aim to use precious and limited federal tax dollars in a way that enhances the market’s own ability to deliver the kind of real estate development Americans clearly want, instead of providing what would essentially be a bailout for an out-of-date development model. Creating federal infrastructure policy that encourages the walkable developments millions of Americans crave would unleash a virtuous cycle of change. It would attract hundreds of billions, perhaps trillions, of private-sector dollars into residential and commercial real estate markets that have not fully recovered from the Great Recession. Today, in the midst of a reasonably strong economy, we are building fewer new housing units per capita than during recessions over the past 60 years. The flow of investment to satisfy this pent-up demand would last a generation, not unlike the postwar drivable suburban boom. Because the so-called built environment (infrastructure plus real estate) is America’s largest asset class, representing 35 percent of the wealth of the country, this extra investment could increase the medium- to long-term growth rate of the U.S. economy by 50 percent—that is, add an extra point to the 2 percent average GDP growth we’ve seen over the past five years.
If done right, the infrastructure investment would also advance a range of other important national goals, from lowering health-care costs (nothing is better for your health than walking) to fighting global warming (denser developments are far more energy efficient) to reversing inequality (as I’ll explain below). Finally, it would profoundly reshape our landscape so that many more Americans are allowed to live in the ways that make them happiest.
“Walkable urban” is really just a new phrase for the traditional development pattern that humans have known since the dawn of civilization, and that was standard in American towns and cities before World War II. Walkable communities tend to be far more compact than drivable neighborhoods. Commercial and residential properties are located near one another, not separated by long distances as we find in most suburbs today. People can comfortably get to where they need to go by foot or by other methods of transportation to suit their tastes and needs—cars, buses, bikes, rail. Back in the day, the infrastructure that made these various transportation modes possible was built and paid for not by Washington but by state and local governments and the private sector. Indeed, the streetcar lines that were fixtures in nearly every U.S city and town with over 25,000 people were generally built by real estate developers as a way to get customers to their newly built walkable projects at what was then the edge of town.
Starting in the mid-20th century, this traditional settlement pattern was abandoned in favor of “drivable suburban” development: single-family homes on large lots, with offices and retail clustered all by themselves miles away. In such developments, cars and trucks are the only viable means of getting around. Anyone brave or desperate enough to go by foot must traverse long distances along arterial roads that often lack sidewalks, with cars whooshing by at 50 miles an hour. Buses come infrequently, if available at all.
Originally, few people complained about this new form of living, aside from urban visionaries like Jane Jacobs. Many in fact loved it (and still do). That was especially true of the GIs who returned from World War II eager to start families. Much of that generation had grown up in crowded cities that, for lack of tax base during the Depression and the war years, had become dilapidated by the late 1940s—and in many cases were filling up with poor black migrants from the rural South. Racial segregation has always been a factor in how we have built our country.
The acute postwar demand for new housing fueled the suburban boom, but it was public policy that made it possible. The interstate highway system, 90 percent of which was paid for by the federal government, made cheap rural land outside cities accessible and valuable to developers. Suburban municipalities used federal grants to extend water, sewer, and electric lines to new subdivisions, charging developers and homeowners a fraction of the real costs of those projects. Under pressure from federal regulations, municipalities enacted zoning codes that effectively outlawed walkable development. On top of that, government-insured mortgages for veterans and others were regulated in ways that required that they be used only to buy newly constructed homes, not to purchase or remodel existing homes—an incentive that for decades strongly steered growth away from cities and toward the drivable suburbs.
Starting in the mid-1990s, the market pendulum began swinging back toward the traditional walkable model. First appearing in coastal metropolitan areas such as Washington, New York, Boston, Seattle, and San Francisco, the trend toward walkable urban development can now be seen in almost every metropolitan area, even unexpected spots such as the downtowns of Oklahoma City, Boise, and Phoenix. For the first time in a century, walkable urbanism is dramatically gaining market share and enjoying substantial price and rent premiums. Meanwhile, in all 30 of America’s largest metropolitan areas, drivable suburban is losing market share and generally bringing much lower prices and rents.
As a result, some business parks and regional malls are losing tenants to walkable urban places, leading development organizations such as the Newmark Grubb international brokerage firm and Urban Land Institute to figure out what to do about this obsolete real estate inventory. On the suburban fringes, drive-until-you-qualify single-family homes have generally not recovered their pre-Great Recession valuations while houses, townhouses, and condominiums in walkable urban areas have skyrocketed in value. Even some recently built luxury single-family mansions and McMansions in drivable suburbs have values below their pre-Great Recession level and have a hard time finding buyers, even at prices that can be below replacement cost. These low prices are the reason housing production is at recessionary levels today, even in the midst of a steady economic expansion.
The declining value of drivable suburban development in many places is the consequence of both oversupply and demographics. Millions of baby boomers are emptying their nests and looking to downsize into apartments, condos, townhouses, or small-lot single-family houses in cities, urbanizing suburbs or small towns where retail, community facilities, and employment are within walking distance. According to recent surveys by the National Association of Realtors, the top category of places where btaby boomers say they want to retire are smaller cities and towns—as long as they’re walkable and have amenities like shopping and restaurants. Many such communities, such as Santa Fe, Ann Arbor, and Lancaster, Pa., are benefiting from this baby boomer retirement boom already and that wave has another 10 years to run before it crests.
Meanwhile baby boomers’ kids, the millennials, aspire to pretty much the same lifestyle, which is causing a problem for baby boomers trying to sell their large drivable homes. Having mostly grown up in traffic-choked suburbs, millennials were never instilled with the old American romance about driving. Smart phones, not cars, are the objects of their affection. Many millennials have settled in center cities and now, as they start to have children, are focusing their energy on improving the public school systems, not home-hunting in the suburbs. And millennials who do live in the suburbs generally pick closer-in, urbanizing ones over the greenfield developments to which their parents flocked in the 1970s and ’80s. Together these two generations, baby boomers and millennials, account for a majority of the U.S. population.
The urbanization of the suburbs is the most understudied development trend in the country right now. A fascinating example is Arlington, Va. In the mid-20th century, Arlington was an entry-level bedroom community for Washington, DC. It became car-dependent starting in the 1950s, when the streetcars that ran from DC along Wilson Boulevard, Arlington’s commercial “main street,” were shut down and a new shopping mall, Parkington (named for its then-innovative multi-story parking garage), was built.
By the 1980s, as the cutting edge of development in the DC region moved farther out, the area around Wilson Boulevard had become economically depressed. But change was happening beneath the surface, literally, as a line on the underground Metrorail system was being constructed below Wilson. Since then, a building boom has transformed the area. Each Metro stop along Wilson has become a mini-downtown of high-rises filled with offices, condos, and rental apartments. These are interspersed with shops and restaurants. These walkable neighborhoods, which constitute 10 percent of Arlington’s landmass, now contribute 55 percent of the county’s tax revenue, up from 20 percent from the same area 25 years ago. This tax revenue now supports a highly diverse and academically distinguished public school system, where students speak more than 80 languages. Arlington’s new challenge is that housing prices are now among the highest in the region because of pent-up demand, especially by millennials looking for an urbanizing suburb with good schools.
Other parts of the DC suburbs aren’t faring quite as well. Housing prices in exurban communities such as Manassas Park, Va., and Upper Marlboro, Md., are flat or just beginning to rise following many years of decline, and prices for high-end homes in tony suburbs with no Metro lines, such as Great Falls, Va., and Potomac, Md., remain below their pre-Great Recession levels. Fortunately for greater DC, the Metrorail system is extending new lines to currently unconnected suburbs (even as it wrestles with deferred maintenance and high demand), creating more opportunities for walkable developments and for the companies that build them. Last year, the area’s biggest real estate development firm, JBG Smith, shed nearly all its properties except for those located within a half mile of a Metro stop, and all of its 70 new development projects are within walking distance of Metrorail.
Walkable urbanism is now taking place in nearly every metro area in the country, including San Diego, Salt Lake City, Chattanooga, and Philadelphia. The most walkable urban metros in the country have a 49 percent higher GDP per capita than the most drivable metros—equivalent to the difference between the GDP per capita of a first-world country such as Germany and a second-world country such as Russia.
While there are more walkable urban places than there used to be, demand still substantially outstrips supply. Progress has been slow in part because real estate developers can’t build as fast as market preferences shift (the country adds only about 2 percent to the real estate inventory in a good year) and in part because government policy has not caught up to what the market wants.
Take zoning and building codes. As mentioned above, these codes, enacted by local governments, have long mandated drivable suburban development. This means that in vast numbers of American municipalities it is literally illegal to build walkable communities. Any developer who tries to get those local codes changed in order to construct walkable projects runs into a multi-year variance process and a jihad of NIMBY protests and lawsuits from local residents worried about increased traffic, the overloading of schools—especially with students from lower-income families—and loss of open space.
The irony of this opposition (which often comes from a small minority of residents) is that walkable places don’t take up much land, as is the case in Arlington, Va. According to recent research, typically 5 to 7 percent of total metropolitan land is all that is required for walkable urban development. The rest of a region’s real estate will likely stay drivable in nature for decades. Ironically given the outcry by some homeowners, single-family homes immediately adjacent to walkable urban town centers, such as Birmingham, Mich., Kirkland, Wash., and Park Cities, next to Dallas, have a 40 percent to 100 percent price premium over values of drivable homes in these same towns. Residents can live in suburban splendor and still walk to fine restaurants, theaters, and shopping outlets. Sometimes the most vociferous NIMBY critics are the very ones who will benefit the most from the urbanization of the suburbs.
Two recent shifts in public policy are beginning to accelerate the trend toward walkable development. One is the increasing willingness of local voters to support proposals to raise local taxes for rail, bus, biking, and pedestrian projects. A record 77 such proposals were on local ballots in 2016. Of those, 71 percent passed—a success rate that has been consistent for such ballot measures for more than a decade. The 2016 measures commit more than $200 billion, primarily for major rail and bus expansions, in metros like Los Angeles, Atlanta, and Raleigh—metros that have been poster children for sprawl. That’s a lot of local money. By comparison, the big transportation bill that President Obama signed in 2015 authorized $305 billion over five years for the entire country, the bulk of it for highways.
The other positive development is a set of provisions in the 2015 highway bill passed by a Republican Congress that will make it much easier for places such as Los Angeles, Atlanta, and Raleigh to get their transit projects up and running. Even with dedicated local sources of revenue, local governments need cash-on-hand financing before they can break ground on big-ticket ventures such as rail lines. They can raise the money themselves by floating bonds. But that risks lowering their bond ratings, which can drive up the cost of other financing. A much better option is to borrow the money directly from the federal government, which itself can borrow at rock bottom rates (less than 3 percent), or to have the feds guarantee their municipal bonds, which has the same effect. The U.S. Transportation Department has long provided two loan programs for this kind of funding—one for the building of toll roads; the other for freight- and passenger-rail projects (which was so restrictive it seldom got used). The 2015 transportation law merged these two programs and broadened the availability of financing to include rail and other transit systems and the infrastructure around stations. Los Angeles is leveraging this program to finance new transit projects approved by voters last fall.
With this system in place—transit-oriented infrastructure built with locally pledged revenues but financed by low-cost federal loans—walkable communities will spring up in more and more places throughout the country, even if the Trump infrastructure push fizzles. But clearly this economic and development transformation could spread much faster with a major infrastructure bill.
Such a bill should hew to three basic principles:
First, the federal government shouldn’t play favorites and pick winners and losers by advantaging one form of transportation infrastructure over others. In practice that means highway, mass transit, bike, and walking projects would get the same percentage of federal matching grants—as opposed to the current practice, in which highways get much larger matches. The federal share of that match would likely be somewhere between 20 and 40 percent, depending on the expansiveness of the infrastructure offerings.
Second, the bill should allow the level of governance closest to the voters—cities, counties, metropolitan-planning organizations, and place-specific organizations such as business-improvement districts—to take the lead in determining what infrastructure investments best serve their communities. Traditionally, decisions on specific projects were made either by lawmakers in Washington’s smoke-filled rooms (the elimination of earmarks has curbed their power) or by state departments of transportation, or DOTs, which much prefer funding rural highways to urban rail-transit projects. Local governments have had virtually no formal role in the decision process. This should change. Under a new transportation-infrastructure bill, municipal, metropolitan-wide, and local governance organizations should have the same rights as state DOTs to compete for federal transportation dollars.
Third, Washington should insist that localities have skin in the infrastructure game—that is, that they find local sources for the funds needed to maintain the infrastructure and service the debt that federal grants and loans make possible. Repayment could come in the form of pledged sales- or property-tax increases, or as a percentage of the increased value of adjacent real estate, paid for by private-sector developers.
Indeed, any new infrastructure program should encourage private property owners and developers to share the burden of building local infrastructure, as their counterparts did 100 years ago. Developers are increasingly willing to effectively tax themselves by sharing the financial upside resulting from real estate projects made possible by these transportation investments, With federal infrastructure grants in short supply, this kind of model—combining local taxes and federal support with private-sector investments paying off cheap federal loans—makes great sense, far more sense than the expensive tax credits scheme the Trump team has put forth.
To help out, the feds should lift the ban on state and local governments charging tolls on interstate highways. Currently, tolls are allowed only on a few stretches, such as in New Jersey and Pennsylvania, where previously built state toll roads were incorporated into the national interstate system. Localities everywhere should be permitted to charge tolls and use the revenue as they see fit. This practice, especially when based on “congestion pricing”—tolls that go up when traffic is higher and down when it’s lower—is a market-based tool to allocate highway usage and mitigate traffic congestion, while at the same time paying for the overdue maintenance of those roads.
These three federal policies (equal treatment for transportation modes; the lowest level of government control; and skin in the game) would give local communities both the opportunity and the responsibility to make their own decisions. If they want to build “bridges to nowhere”—that is, extend transportation and other infrastructure beyond the metropolitan fringe—they’d be free to do so but would need to figure out how to repay the federal loans.
Based on the recent experience of places such as Atlanta, Raleigh, and Los Angeles, it’s more likely that metro areas will respond to market pressures by using their enhanced freedom to develop walkable communities. They’ll build new mass-transit systems, lay down networks of bicycle lanes, and replace stretches of interstates that have destroyed the pedestrian capacities of their cities. They can achieve the latter by creating underground tunnels for their interstates, as Boston did for I-93 with its “Big Dig” project. Or, far less expensively, they can build land bridges across freeways, as Seattle, Dallas, and Duluth have done. They can turn highways into boulevards, as San Francisco did after the elevated Embarcadero Freeway was damaged and torn down after the 1989 earthquake. Today, Embarcadero Boulevard is one of the most popular parts of the city, with adjacent property values and tax revenues far higher than before yet with no reduction in traffic movement.
While the old policy of endlessly widening and expanding highways makes no sense in an era when the public increasingly wants walkable development, many existing highways are in dire need of investment, especially in metro areas where they take a constant pounding. This will be an immensely expensive undertaking and won’t spur adjacent walkable development, but it still needs to be done. The Maryland section of Washington’s famous Beltway, for instance, needs to be rebuilt from the dirt up. The price will be far higher in constant dollars than what it cost to build it in the first place because the renovation has to happen lane by lane, at night and on weekends, in order to accommodate tens of thousands of cars everyday.
In addition to the three major policy shifts described above, any new infrastructure bill, to be successful, will also require both liberals and conservatives to accept some concessions.
Liberals must concede that conservatives are right about environmental regulations having become a way for some people to simply stop beneficial infrastructure and real estate projects they don’t like. Environmental regulation in general and especially the complex process of public comment and multiple reviews mandated by the federal government’s National Environmental Policy Act must be modified to speed up the approval process and not encourage endless lawsuits and delays. It is imperative that we establish a maximum time period for appeals of infrastructure projects. The Seattle Sound Transit 14-mile light rail line from downtown to the east side of Lake Washington is taking 17 years to plan and build, rather than four to six it should take. Beijing has been building subways at 18 miles per year. And it is not just a waste of money in itself but also delays the economic and tax-producing benefits that attend walkable urban development around new stations. Meanwhile, the polluting highway congestion that is strangling the regional economy continues.
Conservatives must concede that liberals are justified in warning that the building of walkable development often harms poor and lower-income Americans. Enabling more such projects could eventually bring down prices to the point where middle-class families could afford them. Plus, walkable communities are more equitable than they might first appear. Low-income households, defined as those making 80 percent or less of a metro area’s median income, typically devote about 40 percent of their income to housing. But counterintuitively, they pay the same (punishing) percentage whether they live in metro areas with few walkable places (say, Tampa) or many (say, Seattle). And those who live in the latter typically pay 40 percent less in household transportation costs (because they don’t need a car, or can get by with only one), and have access to two to three times more jobs, which on average pay much better.
Still, there’s no getting around the fact that many walkable developments cater to the affluent and push out the poor. The only remedy is to consciously add affordable-housing requirements. Any federal infrastructure bill should therefore stipulate that a local government receiving federal infrastructure funding (grants or loans) must require that 10 to 20 percent of housing units built within walking distance of those projects be affordable to families making below the area’s median income.
Finally, both liberals and conservatives must come to a shared understanding of how we want emerging technologies to serve us. New transportation technologies and business models, including Zip Cars, Uber, drones, and self-driving cars, will have a dramatic impact on how our built environment evolves. Some predict they will inevitably revitalize drivable suburban development (long commutes aren’t such a problem if you can watch a movie on your phone while riding). Others foresee them making walkable urban development even more popular (cheap driverless vehicles will make car ownership obsolete and the drive from home to rail stations an affordable breeze). The truth is, nobody knows the future, and nothing is inevitable. Technologies have their own logic, but they can also be guided by policy.
The transportation policies fashioned by elected officials in Washington more than half a century ago created the drivable suburbs. Today, the market is clearly signaling that more and more Americans want a different, more walkable built environment for themselves and their children. Our leaders in Washington should listen.
Christopher B. Leinberger is Charles Bendit Distinguished Scholar and Research Professor at the George Washington University School of Business and a nonresident senior fellow at the Brookings Institution. This story is being co-published by The Washington Monthly and The American Conservative.
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